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Wanted: One effective opposition

I’m driving up to Skye shortly, to stay at an old friend’s house. And apart from walking around doing some aimless wandering and driving to the more distant parts of the Isles to do some aimless wondering, I’m going to be chained to my bluetooth keyboard. I’ve got a shedload of writing that I need to do, and there’s nowhere better to write than where I’m going to be, for lots of reasons.

As I’ve mentioned before, it’s rare that I write about politics, and even then it tends to be more about the political process than my own politics and beliefs. But eight months out from the next election, I find I’m getting angrier and angrier about one thing in particular. Not the bedroom tax1, nor the tax avoiders2, not even the rank hypocrisy3 from all sides.

But since I’ve mentioned those three, let’s get them out of the way before moving on.

1The bedroom tax
Yes, it’s a misnomer; it’s not a tax. If anything, the actual sickening nomenclature by which it’s referred to by the government is more accurate. Or at least it would be if it was an extra amount paid to those on housing benefit who live in social housing, what used to be known as council houses. But it’s not an extra amount. Neither, though, is it a tax; it’s a reduction in the benefit paid. But I guess that’s not snappy enough for a title.

Thing is, I don’t see anything wrong with the measure in principle. The government’s argument makes perfect sense. Now, before you jump down my throat or spit at the screen, I’m talking about the basic principle of the tax/subsidy/reduction in benefit, not how in practice it’s being implemented. Of course there should be exemptions for those who need a room solely for medical equipment; of course there should be exemptions for disabled people with carers; of course there should be exemptions for temporary situations. And, quite important this, OF BLOODY COURSE it shouldn’t apply in any situation where nowhere for the family to move to! It would be a controversial (though, as I’ve said, certainly arguably justifiable) if there was spare capacity in the [public or privately owned] housing market. But when there’s no spare capacity? It’s illogical, foolish, unfair and morally indefensible.

2Tax avoiders
Before I write anything else, let’s get it straight, there’s a world of difference between individuals and companies when it comes to tax avoidance. And even once those have been discussed (as I’m about to) I’ve changed my mind on whether or not tax avoidance is a good thing or bad. More about that in a moment.

Oh, and if the government outlaws “aggressive tax avoidance” and makes it illegal, it’s no longer tax avoidance in any way that counts. At that point, it’s just “tax evasion”. It’s a simple rule: tax avoidance is legal, tax evasion is illegal. You can’t have illegal tax avoidance; it’s an oxymoron. (As opposed to just “a moron”, which describes quite accurately those who write about it from a wilfully ill-informed position.)

OK, individuals. First off, a famous law case, many years ago, is often said to be what kicked off tax avoidance as an industry. How long ago? How about 1934, when Judge Learned Hand wrote in a judgement:

“Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

However, one could argue that there is a moral duty, that it’s part of the civil contract, that people pay their taxes and that they do so in acknowledgement of what Elizabeth Warren, the junior Senator from Massachusetts, said when elected:

There is nobody in this country who got rich on their own. Nobody. You built a factory out there – good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory… Now look. You built a factory and it turned into something terrific or a great idea – God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”

None of which I’d disagree with. Because people have moral codes by which they live. Some may be immoral, some amoral, but there are morals the effect of which everyone lives under, through and with.

Now we come to Companies. I’ve found it almost amusing how the very people who loathe and detest the idea that companies could be people (see recent Supreme Court decisions, particularly the Hobby Lobby decision) are the very same people who say that Companies should have morals and should pay their ‘fair share’ of taxes. (More about that term in a moment.)

First off, companies don’t have morals, don’t operate under a moral code, and can’t possibly do so. Because it’s illegal for them to do so. Companies, depending upon in which jurisdiction they operate, are bound by territorially-specific legislation and company founding documents to act for the benefit of… who?

The government? No.
Their employees? No.
Their directors, then? No.

Their shareholders. Not individual shareholders, of course, but as a body. That’s it – that’s in whose benefit the company is obliged (note that, obliged) to act. It’s very possible, in fact I’d say certain, that if a company paid more tax than it was legally obliged to do, the shareholders could sue the company’s board of directors for giving away money that is properly theirs, as the owners of the company. After all, that money could have been used to pay out dividends to those very same owners of the company or could have been reinvested to increase the value of the business, and thereby the wealth of the owners.

“Fair share”. Oh yeah, I said I’d get back to this. UKUncut among others have said that companies should pay their ‘fair share’ of taxes. I’ve always been irritated and puzzled in equal measure by the use of this phrase. Could someone please define it? And not by offering synonyms, but by actually explaining what they mean. Because it seems to me that it’s great as a slogan and utterly useless as a policy suggestion. Do they mean the company shouldn’t take advantage of reliefs specifically offered to companies to invest in certain industries? Do they mean that companies shouldn’t get a tax break on the money spent to research and develop medicines, or new technology? Do they mean that companies shouldn’t be able to write off assets over a period of time? Or do they mean that companies simply shouldn’t be able to… to…

No, what they mean is that companies should pay more tax. That’s it. That’s all. No sensible, practical suggestions how this should occur without overwriting company legislation and centuries of case law. Just that companies should pay more tax. Still it’s always easier to slogan paint than solve problems, eh?

I mentioned that I’d changed my mind on something to do with tax avoidance. And I have. For many years, certainly for all the years I was in the business of accountancy and then as a financial director, my view was that if it was legal, it was fine for a company to take advantage of reliefs and tax breaks offered. No matter how convoluted, if it was legal, it was ok.

I’ve amended my view on this for one simple reason: I realised that tax avoidance schemes fall into two simple categories: call them ‘considered’ and ‘cockup’.

Considered tax avoidance is, let’s agree, where a government has fully intended and deliberately put into legislation a tax break or a tax relief that they fully desire companies to take advantage of. An obvious example would be film production. Movie companies can choose to film in any number of countries. If a film is being made in a country, however, they’ll employ a number of people – cast, crew, etc. – and these people will spend money in the country; there’ll be payroll taxes paid to the revenue service. And all the associated benefits that come along with a production, direct and indirect benefits. So a government will often offer tax breaks to film companies in order to induce them to film in their country. I see nothing wrong with this in principle. As I say, the government fully expects the benefits to outweigh the money they’re voluntarily (and again, I stress this, deliberately) forsaking.

Cockups on the other hand are precisely that; a mistake in the drafting of the legislation that leaves it open for a smart accountant to take advantage of a gap in tax law just to save their client from having to pay their full amount of taxes. It could be a mistyped sentence, or an entire passage in the law. Or it could be that most horrible yet inevitable law: The Law Of Unintended Consequences. Either way, anyway, it’s an error, a blunder, a cockup. And no company, no individual should have the right to unfairly benefit from a mistake of government, just as no individual or company should be unfairly punished for a mistake of government.

If only there was a way to know what a government intended when they introduced legislation.

Oh wait. There is. In the UK, it’s Hansard; in the US, I believe it’s called the Congressional Record? And there are briefing documents by the truckload issued by government departments. It’s not difficult to discover what the intentions of government were.

So here’s where I stand at the moment. And I remind you that ‘illegal tax avoidance’ doesn’t exist; it’s legal tax avoidance and illegal tax evasion.

Considered tax avoidance is tax avoidance; perfectly legal, perfectly justified in my view. Cockups are tax evasion from the moment it’s discovered it was a cockup. I’m not sure – I’m willing to be persuaded on this one – that someone taking advantage of a cockup should be retrospectively punished; mere payment of the tax avoided (avoided, yes) should be sufficient, and the loophole closed. Future attempts to use any ‘closed’ cockup are flat out evasion and should be punished to the full extent of the law.

3Rank hypocrisy
Yeah, I wrote about this a couple of weeks ago. Not about to repeat myself, so you can read my views on it here.

So, if you remember way back when, I said I’m angry. If it’s not about the above, what am I angry about? Well, it would be nice if the official opposition was making those arguments, and holding the government to account for once. The more I consider the current state of the Labour Party as our official opposition, the angrier I get.

I’ve no brief for Labour – I find many, but not all by any means, of the policies they espouse to be ones with which I fervently disagree. But then I could honestly say that about any and all of the major political parties in the United Kingdom. No, what pisses me off is that for all my faults, I tend to believe in the value of a strong opposition. Not “to keep this Government honest”; I think that it would require several torture chambers, daily enemas and being hooked up to portable lie detectors to achieve that, same as with any government.

But a more than halfway decent opposition is important to ensure that the public knows at least some of what the Government is up to. It’s been some time since a Government has treated the House of Commons with any respect, as anything other than a necessary duty. But successive executives have so emasculated Parliament (with their fawning acquiescence) that unless and until there is serious Parliamentary reform, nothing will change. The current Speaker has gone some way, some little way, to helping MPs in the chamber of the House of Commons at least try to do this, but it’s very little, very late.

It was no different almost fifty years ago when Richard Crossman wrote in his diary:

Cabinet. The Prime Minister had decided to take my procedure package of parliamentary reform. Actually it took nearly two hours and was a ghastly discussion. How ghastly you certainly wouldn’t get an idea from the Cabinet minutes . . . The moment I’d finished George Brown said, “Well, it’s asking a terrible lot of us, Prime Minister. We’re busy men.” . . . He was followed by Minister after Minister round the table simply saying how busy they were, how they were harassed by all these Cabinet Committees and how they simply couldn’t be burdened with any more work by the House of Commons.

Most of these Ministers were individually as well as collectively committed to parliamentary reform. Yet, after two years they’ve become Whitehall figures who’ve lost contact with Parliament. And of course what they’re saying is pure nonsense. The Executive rides supreme in Britain and has minimum trouble from the legislature. Perhaps it’s because Parliament is so entirely subordinate to the Executive that my colleagues were saying, “We can’t allow this Parliamentary Party to bother us.”

And what, after four years in power during which a coalition Government has enacted legislation from a cobbled together coalition agreement instead of a manifesto with a mandate, does the Official Opposition party spend the majority of their time doing?

Well, it seems to me to be an even split between defending their leader to those who dislike him intensely, and briefing the media against that very same leader.

This should be the time when the official opposition should be challenging the government every bloody day. And they’re not. At all. They should – less than a year out from the next general election – be ripping the Government a new hole daily.

Do I want a Labour party in power? I don’t know – show me their next manifesto and I’ll tell you.

Until then, I’d be content with them proving they actually bloody want the job.

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Agreed entirely, actually doing the job they already have in opposition would make Labour considerably more electable to the position of government. Ineffective opposition doesn’t bode well for the future.

I think one way of dealing with tax avoidance would be to push for something more like the German model, where corporations are responsible to stakeholders rather than stockholders. That actually seems to me quite a conservative (although not Conservative) proposal. But I can’t imagine the current opposition even thinking it.

And I’d not support such a move if they did. The company, in British Law (and yes, I’m well aware that there’s no such thing; there’s English Law and Scottish Law – fortunately, here, there’re the same) has always been predicated upon rewards and obligations to those who have a financial stake in the company and have justified that stake by investing in it, i.e. the shareholders.

Many people don’t realise that the “limited”, as in limited liability, in a company’s name does not refer to the company itself (a company has unlimited liability) but to the shareholders, whose liability is limited to the unpaid amounts of share capital. But ‘stakeholders’ have no inherent stake in the company’s success or failure. Of course the stakeholders have some stake, some financial exposure; that’s why the companies legislation prohibits reduction of what’s known as the ‘creditors’ buffer’. But that’s the limit of the company’s obligation to so-called stakeholders, and it’s a limitation of which I approve.

The way it works in Germany (as I understand it; I’m not exactly an expert) is that the responsibility to stakeholders is taken to mean a social responsibility — to employees, communities, etc., people who do have an inherent stake in the company’s success — rather than a responsibility to creditors. I’m sure there are reasonable objections people could have to that, but my point is that “let’s be a bit more like Germany” is not exactly a radical anti-business position.

(I also come to this from the point of view of someone working in biotechnology, which is just rife with market failure as a consequence of the narrow responsibility to shareholders. Your average medical treatment takes about a decade to develop. Your average CEO is focused on the next quarterly earnings report. It’s basically an ongoing calamity.)

The objection is have to it is it’s turning the whole purpose of a company inside out. The company has – and should have in my view – no responsibilities beyond legal. The moment you allow it further responsibility you leave the door open for the Hobby Lobby decision

The moment you give companies “personal choices” such as morals, etc you allow them even more licence to manipulate and be “unfair”. While their only motive is to benefit “the shareholders as a body”, everyone knows where they stand. And the directors become personally liable (under British law) for breaching that. When a corporation has ability to go beyond that, you lose the liability of the directors.

I’ve seen more of the American system, but there it always seems that the CEO’s primary responsibility is to increase his salary, which he does by selecting the board that sets it… I wish I had your idealism, basically!